By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold eased on Friday as traders booked profits after a seven-day rally and as the dollar rebounded on strong U.S. data, but the metal looked set to post its second straight weekly gain on expectations U.S. interest rates will stay low for longer.
Tensions in the Middle East after Saudi Arabia and its allies launched air strikes in Yemen provided some support to gold, seen as a safe-haven asset.
Spot gold eased 0.2 percent to $1,201.70 an ounce by 0302 GMT. The metal jumped to $1,219.40, its highest since March 2, on Thursday in a knee-jerk reaction to the air strikes in Yemen, but pared gains to close near $1,200.
"Gold is weakening because of profit-taking and a slightly stronger dollar," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
"I don't think traders would want to commit too much unless things worsen in Yemen," said Leung, adding that prices could consolidate around $1,200 in the near term.
Gold tends to be an investor favourite when geopolitical tensions rise and risk-appetite dips.
However, gold's failure to hold on to 3-1/2-week highs reached on Thursday made traders cautious over the price outlook.
"Although the metal breached the 100 day moving average (near $1,208) during the session, it failed to close above the indicator, which may signal that this latest run is nearing an end," said MKS Group trader James Gardiner.
Oil prices also gave up some overnight gains as markets believed the threat of a disruption to world crude supplies from Saudi Arabia-led air strikes in Yemen was low.[O/R]
WEEKLY GAIN
Despite bullion's losses on Friday, it was on track to finish the week up 1.5 percent on the back of a seven-day rally, its longest winning stretch since August 2012.
Bullion has been well-bid since the Federal Reserve sounded cautious last week about the U.S. economy and the pace of an interest rate hike. An aggressive rate hike path could hurt demand for gold, a non-interest paying asset.
The comments prompted the dollar to fall from multi-year highs, although the greenback got some boost on Friday after data showed the number of Americans filing new claims for jobless benefits fell more than expected last week.
Caution over bullion's price rally was evident as SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continued to see outflows.
Holdings of the fund fell nearly 6 tonnes to 737.24 tonnes on Thursday, the lowest since January.
Bullion traders will be eyeing Fed Chair Janet Yellen's speech at a conference later in the day for more clues about the U.S. central bank's view on the timing of interest rate hikes.
(Reporting by A. Ananthalakshmi; Editing by Prateek Chatterjee and Richard Pullin)
